MIDEM – New Music Models For Retail

One of the big issues at MIDEM was how to license “The Ad Funded Model”

QTrax, We7, Imeem, Last.fm – the list is growing. These services, and many more, are developing models that rely on Ad Revenue as a main source of income, allowing them to subsidise or give away the music.

I’m in favour. However, many people I spoke to were not enthusiastic either because the current revenue is too small, or it will take 5 years to generate money or because there is no minimum rate.

I agree the low revenue per track and/or lack of minimum is hard to find palatable. However, we have to recognise that 95% of music downloaded is illegal and that people want as much music as possible for as cheap as possible. That’s not to say music has no value, on the contrary. People are willing to pay FOR MUSIC, just not individual tracks. The reason we need the ad funded models is to monetise the millions and millions of free downloads that people are UNWILLING to pay for. This may include music by artists they like but not love, or they’re experimenting, curious, cause their friends have it, cause they want the biggest collection, cause it’s a live track and the quality isn’t good, cause it’s an unofficial bootleg, cause it’s a remix, cause the meta data isn’t important… etc. There are a multitude of reasons why people WON’T pay for the MP3’s filling up their hard drive. But there are reasons why people WILL pay. For instance, I pay for eMusic, not because I can’t get the music via P2P, but because the editorial leads me to new music, because the tracks are normalised, because the meta data is always correct, because I can create and share playlists, etc. And I would download individual tracks if by doing so I gained some extra benefit like getting preferential treatment at gigs, getting the track first, getting the remix parts, getting a high quality version etc.

So, there will be three models:

Ad Funded – millions and millions of downloads very cheaply. Low quality MP3. Include P2P sites, music blogs (such as Hype Machine) and mainstream Social Networks, e.g. YouTube, MySpace etc. The deal structure is a share of revenue, pro-rated to the content.

Subscription – these are value added services that push, educate and enhance the free model. eMusic, Rhapsody, Napster in particular but also music focused social networks such as HayStack, The Sixty One and Imeem. These sites should partner, so for instance, being a member of eMusic allows me to download from a social network like Bebo or iLike.

A la carte – either on the artist website or specialist music sites such as Beatport or Ministry. High quality, one off downloads, purchased via PayPal or some sort of payment linked to a subscription service, i.e. as a member of Napster you can download from an artist site.

There can be no minimum rates in models 1 and 2 since embedding, widgets and super distribution mean the source of the file (e.g. Imeem, iLike, Haystack etc) can not always guarantee an advertisement attached to the track. But if ALL the services were licensed this would not be such an issue. Instead, a guaranteed minimum per month could be employed. This is already how the cable TV model works – programmes are commissioned or bought for a set fee, regardless of the number of viewers.

Hi Neil
Steve Purdham, CEO of We7 here – thanks for the mention.
We had a great time at MIDEM, and it’s exciting to see different parts of the music industry starting to take models like our ad-supported one at We7 seriously. By that I mean that we’re having real dialogue with record labels as well as fans and artists – who we’ve been in close contact with all along!

Making money for artists has always been at the heart of We7 philosophy – giving fans and artists what they want – we’ve been enjoying paying out royalty cheques to new and upcoming indie acts from day one.

You have summed up teh landscape for emerging models and I think we will see lots of variations on each theme. The key is that the new models nee to scale so that the economics start to make sense. So hopefully more models will emerge flourish and scale.

I’d love to hear from some of your readers if they’ve tried out We7 or any of the other services, and how they’ve got on.
Cheers
Steve
CEO We7